How to Succeed as an Angel Investor


how-to-succeed-as-an-angel-investor

Investing in businesses can be a lucrative investment strategy when successful businesses are chosen. Venture capitalists and angel investors invest in startup companies and businesses that need to expand. Venture capitalists typically do not invest their own money, but instead invest in funds that have been pooled together by other investors. By comparison, angel investors are usually individuals who invest their own money into projects. Venture capitalists often have very strict criteria that must be followed due to the agreements with investors. Angel investors typically have no such restrictions and can choose to invest based on personal preference.

You will need to identify successful business opportunities, one that is ground breaking or promises a lot of profit & growth.  You will need to sit down with the entrepreneur seeking funds and find out exactly what the company has to offer. Find out what products or services the business offers that you can’t find anywhere else. Look at the company’s strengths and what it needs to do better. Finding successful companies to invest in is not necessarily all about finding companies that have it all together. As an angel investor, you have the ability to offer your expertise and connections to enhance the company. You have to look at the company in light of your own skills and what you have to offer it. The right angel investor can even completely turn the company around with his or her contacts. It is not all about the money you invest, but what you can bring to the table.

In some cases, finding a successful business to invest in is less about the actual business model and more about the owner of the business or the entrepreneur. Becoming a successful angel investor is largely about identifying talent. Ideally, you should look for someone who has good ideas and a propensity to see them through. When you invest in an entrepreneur’s business idea, you want to make sure that the entrepreneur is going to work hard (and cleverly) to ensure success. The idea they suggested might not be good enough but they might be having good talent to come up with more ideas or execute an average idea brilliantly.  Business owners may not have the money they need, but they can put up sweat equity in the business venture. You may not always be right about people, but if you want to be successful in this industry, you have to be able to choose good people to go into business with a majority of the time. You will inevitably invest in some bad businesses and with some bad business owners. However, the important thing is that you reduce the number of bad deals and increase the number of good deals.

You also need to have an exit strategy in mind. This exit strategy should be specified on the front end of a deal with an entrepreneur. The exit strategy can be unique for each case, but you need a strategy specified. For example, if you come across a once-in-a-lifetime deal and you think the company will be very successful, you may want to stay with the company for the long-term. With other companies that will do well but not to that degree, you may want to create a three to five year plan for your investment. After the specified amount of time, you have the option of reviewing the terms of your agreement and extending it if necessary. If you want to get out of the company at that time, you have the right to do so.

Although choosing the right deals to invest in is an important part of this business, you also have to be able to find deals to consider. Without a steady stream of referrals or contacts, you will not be able to find enough good businesses to invest your money into. Angel investors use a number of techniques to bring in potential business partners. For example, there are many websites that strive to connect investors and entrepreneurs. You could set up a profile on one of these sites and make it known what types of businesses you like to invest in. Another way to find businesses to invest in is toadvertise. Take out an advertisement in a prominent magazine in the appropriate field. Include your contact information and then expect a number of entrepreneurs to approach you with business ideas. Once you become successful in the field, referrals will start to come to you from multiple sources. People that you work with will know other people who have business ideas and they’ll know that you are an investor. As you increase your circle of influence, you will also increase the number of business opportunities that you have to choose from. You can also the social network for making private investment for finding investment oppurtunities.

Risks; You have the chance to significantly increase your investment dollars as an AI. At the same time, it comes with a substantial amount of risk. When you invest in a startup company, you never know if you will get any of your money back or if the company will go out of business. This is a high risk type of investment that should only be done by professionals. This process should not be completed unless you have money to risk. The money you invest should not be something that you’re counting on. By being selectivein what companies you invest in and using your own expertise to further the business model, you can reduce some of this risk. However, the risk can never fully be eliminated and many risk factors are outside of your control. You never really know how the market will respond to a new product or service and this represents an unknown variable in the process. While it is risky, investors are compensated well for this risk. In exchange for your investment, you can get a large percentage of the company and the profits that are generated. With high risk investments comes high returns on investment.

Legal issues; Before getting involved with any new business, you have to make sure that you are covering all your bases legally. Nothing is done on a handshake agreement anymore. When you strike up a deal with a potential entrepreneur, make sure to get everything in writing. Once you draw up a contract, it should include information about the amount of money that you are investing and the benefits that you are receiving in exchange for this investment. For example, the contract should include information about what percentage of the business you own and how you will receive your returns. For this part of the process, it typically makes sense to hire a lawyer to come up with a contract and to review the potential terms. By bringing in a contract lawyer, you can avoid many of the disputes that often come with this type of investment. Covering everything in the contract will help head off some of the potential problems that you may run into with the business owner. If the business owner has any concerns or questions, be sure to cover the is on the front end of the deal and include them in the contract. Then both you and the business owner should sign the contract and possibly have it notarized so that there are no disputes about the validity of the agreement.

Taking it forward; Once you have a signed contract with an entrepreneur, you should get to work on the business as soon as possible. Provide the funds to the business in accordance with the signed agreement that you have. If you are doing any work in relation to the business, get started on your part of the deal. This may include contacting influential people in your industry to get the ball rolling. Throughout the process of the deal, you should also check up on the company’s financial records to make sure that everything is running smoothly. When you invest a large amount of money into a business, you want to make sure that it is doing well and that the business owner is keeping expenses under control. Sometimes, business owners will start to become a little less diligent in this area once they secure a large investment from a venture capitalist or angel investor. It is up to you to keep the business owner accountable in this area.

After you and the entrepreneur have begun work on the joint project, the exciting part begins. This is where you get to reap the fruits of your labor. If you chose a good business model to invest in, you may start bringing in returns relatively quickly. If not, you may need to wait a little longer to realize success or make some tweaks to the business model to get it to work.

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